When shareholders want to vote to assign a special committee (e.g a committee that will be able to approve or disapprove any potential new shareholders from joining the corporation) how could such a vote become official and legal?
And do the people on the ballet have to be shareholders, or could people outside the corporation also be voted to become part of a committee?
Thank you in advance
ANSWER: Normally shareholders will not vote on such a proposition directly.
Typically shareholders will elect directors, who then are obliged to direct the company per the constraints of the Bylaws. The Bylaws will specify what powers the directors and officers possess and what they can and cannot do.
Not uncommonly, shareholders create and execute a Shareholder Agreement, that constrains buying and selling the shares, and may contain other covenants.
If the Bylaws permit it, the procedure as you describe, is that the Shareholders would call a Special Meeting of Shareholders, present the matter, take a vote, and create Minutes of the meeting.
The directive would instruct the Directors to create a special Directors Committee for the purposes you describe. As long as the Bylaws (or State statutes) do not prevent it, non-directors, or non-shareholders may serve on corporate committees.
The Directors would then meet and vote to accept the directive of the Shareholders, and then make further resolutions in their meeting Minutes to implement the directive. This is how they would document their activities.
Be aware that certain rules may prohibit some group arbitrarily deciding who can or cannot be shareholders. It would be better if possible for the Committee to create additional Bylaws or a Shareholder Agreement wherein any potential owner would have to agree themselves to the provisions, rather than just be arbitrarily barred.
This would be the legal procedure.
Only Shareholders may vote on corporate matters however, non-shareholders may make recommendations to the shareholders, but cannot vote.
Feel free to follow up with any additional questions.
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QUESTION: Thank you so much for the detailed response.
Could the committee be made up of people that are not shareholders if that's what the shareholders vote for, or the committee must be shareholders only?
ANSWER: The Committee may be non-shareholders. But remember that they may then only make recommendations to the shareholders, and then an additional vote and action must be taken by the Shareholders themselves. It would not be prudent or common for such a committee of non-shareholders, non-directors, non-interested people to have direct POWERS to make any decisions or take any actions in the company, but only to advise.
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A follow up question to you previous response.
When a proxy is used during a shareholders vote. Does the proxy note have to be retained for the record, or as long as it is presented by the meeting/vote and there are no disagreements about the proxy at the time of the vote that is enough?
If someone tries to argue a few weeks after the vote that a proxy was issued by the son of the deceased owner, and that the certificate was not re-written to the sons name and therefore the shares were never transferred from the deceased owner to her son, and therefore the son doesn't have the right to issue a proxy. What would be the best way to rebuff such a claim?
Appreciate your thorough responses in advance
Yes, typically a proxy must be retained for the record, especially important if there are concerns about a challenge to the proxy.
Normally proxys are executed digitally or by signed paper proxy. They either pass the voting power to a specific individual or back to the BOD, but only for the voting matters before the shareholders listed on the proxy statement. Some companies will accept a blanket proxy but usually it is not a good idea and opens a window for problems.
Your problem with the son is apples and oranges.
If the son possesses a valid proxy by the named shareholder, his vote is valid. Period.
If the proxy is not issue specific but a blanket proxy, his vote is valid for any vote, even if the shareholder is deceased.
Once a cert is issued in the son's name. he can vote his own shares and a proxy is unnecessary.
It is correct that the son, if in possession of a legal proxy, cannot easily transfer that power by secondary proxy to another without causing problems.
Hopefully this is helpful!